Tax question


#1

We bought a 1965 Mustang 7 years ago for 12,500. The thing has worked for about 30 days in that entire time. We intended it to be a daily driver and have put several thousands of dollars into it for nothing. We need to get rid of it. It still doesn't run.

The problem is this: we never had the title officially transferred, which we need to do before we sell. The form asks you how much you paid so you can be taxed on it. Based on the sale amount, we would have to pay around $850. Yikes. The original seller left this blank on the bill of sale so that we can just write in whatever amount we want. I could write in $500 and pay a fraction of that amount on taxes.

Normally, I would say this would be wrong, IF we had ever been able to actually enjoy the car. But we didn't. It has sat in the garage for 7 years with almost zero use. I am reluctant to pay an enormous tax because it feels like getting doubly screwed over. Am I morally obligated to write in what I actually paid and pay money we can't afford to get this monkey off our backs, or can I just write in a smaller amount so I can cut my losses?

If I paid 10,000 for a fake diamond that I thought was real, would I be morally obligated to pay taxes on the original 10,000, even thought the actual item wasn't worth anywhere near that?


#2

What amount would you have entered if you had the title officially transferred when it should have been officially transferred? When you buy “as is”, you buy “as is”? If you keep it for years without return, you have bought the loss. I think that is the right answer but, I know I would have a heck of a time doing the right thing myself.


#3

If you write in $500.00 you will be lying. Trying to rationalize and justify it won’t change the fact of the sin.


#4

[quote="wynnejj, post:2, topic:320405"]
What amount would you have entered if you had the title officially transferred when it should have been officially transferred? When you buy "as is", you buy "as is"? If you keep it for years without return, you have bought the loss. I think that is the right answer but, I know I would have a heck of a time doing the right thing myself.

[/quote]

If I had done it right away, I would have put $5, because I was not quite as "morally sensitive" as I am now :) But in all seriousness, I would probably have put the purchase amount AT THE MOMENT OF PURCHASE. Because it literally stopped working like the next day. $4000 later, it still doesn't run.


#5

Yes, and when I tell my brother-in-law he looks good even when he is wearing sock with his sandals and jean shorts, I am also lying. (Jeff, if you are reading this, this is just for exemplary purposes. You look amazing.) But it’s an acceptable lie in the grand scheme of things. Is this also the same thing as stealing? Would this be a mortal sin because of the amount? Or is it I fib to cut my losses? This is where I am unclear.


#6

You paid $12,500 for it, you pay $850 in sale taxes as required by law. Doesn’t matter if the car runs perfectly, runs only part of the time or never starts again. Just because you bought a lemon of a car doesn’t mean you don’t owe the correct amount of sales tax on the purchase. Its not only the moral thing to do, its also the LEGAL thing to do.


#7

Ya gotta bite the bullet and be honest.

You guys not mechanically inclined or sumthin’? Jack up the radiator cap and drive a new car under it. That should fix it!


#8

If the car didn’t work the way you expected, it should have been taken up with whoever you bought it from at the time. There isn’t any reason that you shouldn’t have to pay sales tax on it like everyone else in your state- the car not working is a separate issue.


#9

Thanks for the responses. We will be paying 300 bucks to get a bonded title and then we will have to pay 300 bucks in taxes. It's a mess because apparently the car wasn't even in the previous owner's name. Ahh, forging the document and lying about the price would have been so easy :)


#10

Just remember, though, that your taxable basis on the sale of the car is $12,500, so if you sell it for a loss, you get to claim that loss. If you sell it for $15,000, you only have to pay $2,500 on the gain, instead of $14,500 (if you put the purchase price at $500).


#11

[quote="Mumbles140, post:10, topic:320405"]
Just remember, though, that your taxable basis on the sale of the car is $12,500, so if you sell it for a loss, you get to claim that loss. If you sell it for $15,000, you only have to pay $2,500 on the gain, instead of $14,500 (if you put the purchase price at $500).

[/quote]

Oh, we WILL be selling it at a loss, haha. Awesome tip!!! Thank you :)


#12

:yup:

Sarah x :slight_smile:


#13

If you were getting other money back that the dmv unjustly took from you via entering the lower amount would be justified.


#14

That’s a nice idea, but losses from the sale of personal-use property, such as your home or car, are not deductible.

See IRS Tax Topic 409 - Capital Gains and Losses.

Mumbles, instead of giving tax advice on a public forum, I would recommend you (and everyone else) suggest that the questioner seek the advice of a tax professional who can look at the questioner’s personal situation in its entirety. The information the questioner has omitted from revealing will often completely change your answer.

Note to the OP: You failed to title and register the car when you bought it. You can probably expect that the state will charge you a penalty for that omission, on top of the taxes that you failed to pay.


#15

The woman we spoke to assured us that getting a bonded title for the current value of the car is perfectly legal and will take care of the fact that the original seller is not on the current title. We specifically told her that we are not trying to avoid paying our “fair” share and she assured us that this is the standard legal route to take :slight_smile:

It will cost isles than a lie, but we are doing what we can to be honest within the bounds of the law.


#16

I had a situation a bit like yours about two years ago.

I bought a used motor scooter for my daughter to use while at college. When it was delivered I had the seller sign a bill of sale, and then he told me that he would bring me the title in a couple of days, because the woman he got the scooter from still had it. There was also an expired out-of-state license plate attached. According to him, the woman he got it from had received it from her sister as a gift, and when took possession she claimed she had temporarily misplaced the title. He had never titled or registered the scooter.

I looked up the scooter's VIN on one of those title and license plate search websites (paid a small fee for that) and found out that the real registered owner lived in the state where the license plate came from. I also discovered that the plate was issued for a different vehicle, a full size motorcycle.

At this point I was wondering whether I had stolen merchandise sitting in my driveway. But I still wanted the scooter.

It took several tries over the course of two weeks to finally get ahold of the woman, culminating in my tracking down her son and knocking on his door, whereupon he called her and I finally got to talk to her. She confirmed the story that I had been told and promised to look for the title.

Two weeks later she called and said she would have to get her sister to order a replacement title. But the sister no longer had the VIN or vehicle description. Fortunately, I had them written down in my folio.

The replacement title was not a priority for the sister. She could have gotten the replacement issued within 24 hours; she took a month. When it finally did arrive the sister had signed her name in the Seller block (whew!) but left the rest blank. The woman forwarded it straight to me without signing it herself.

Of course, I didn't have a Bill of Sale from the woman or her sister. I've been around the block enough times to know that the DMV office doesn't like non-routine transactions, so I called two privately owned auto title offices. One of them said that without a Bill of Sale I'd have to pay the tax and transfer fees based on the standard Blue Book value; the other one said they'd let me report what I actually paid, which was substantially less than Blue Book.

It's a good thing I received the replacement title. With the vehicle titled in another state, and without a dated Bill of Sale proving the transaction date, they were going to charge me a penalty for failure to timely re-register in state. But the replacement title had the date of issuance printed on it, and I was registering it as the new owner within the allowable window after that date.

So, nearly two months after I took delivery, I was finally able to bring the motor scooter to my daughter's college.


#17

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